Comptroller of the Currency Calls for Better Credit Card Disclosures

WASHINGTON — Comptroller of the Currency John C. Dugan today told Congress that current credit card disclosure rules should be changed to improve consumers' ability to make well-informed decisions about the credit cards they choose.

During his testimony before a subcommittee of the House Committee on Financial Services, Comptroller Dugan said, "Effective disclosure can have three fundamental benefits for consumers: first, informed consumer choice; second, enhanced issuer competition to provide consumers the terms they want; and third, greater transparency that will hold the most aggressive credit card practices up to the glare of public scrutiny and criticism, making issuers think long and hard about the costs of such practices before implementing them."

Disclosures have not kept pace with the changes and complexities of credit card terms and practices, according to the Comptroller. Many consumers do not understand sophisticated features like "universal default" and "double cycle billing" because current rules do not provide adequate disclosure of these practices.

The OCC does not have the legal authority to issue regulations under the primary consumer protection statutes that govern credit card lending, and it faces limits on what it can accomplish alone to reform disclosure practice. "That's why the Federal Reserve's undertaking to revise its disclosure rules is so important," Comptroller Dugan said.

Changes to Regulation Z, which establishes rules for credit card disclosures, would set new standards that apply to all participants in the credit card industry, and uniform standards help to ensure equal protection for consumers across the credit card industry.

Can improved disclosure be sufficient to address the fundamental issues raised by current credit card practices? The Comptroller answered this lingering question by saying, "[W]e believe changes to Reg Z show real promise of addressing a number of these issues." He went on to note that "most national bank issuers have already moved away from such practices as universal default and double cycle billing."

The Comptroller also highlighted that while competition in the credit card market has led to "complex and aggressive pricing structures," it has led to "the virtual elimination of annual fees; lower interest rates for most consumers; and increased credit availability for more Americans."

According to the Government Accountability Office, the credit card market has grown to provide unsecured, open-end credit to more than 691 million consumers as of 2005. As a result of this growth, "credit card accounts require substantial ongoing risk management," Comptroller Dugan said.

"One way that card issuers address this risk is through changes in pricing, whether through increased interest rates or fees," he said. This "risk-based pricing," according to the Comptroller, "can be an important tool used by card issuers to effectively manage risks – so long as it is effectively disclosed."

The Comptroller cautioned that, as Congress weighs the costs and benefits of going beyond disclosure regulation to restrict risk-based pricing, it should bear in mind that "proposals to restrict risk-based pricing could have unintended consequences regarding banks' ability to manage risks, or on the availability and affordability of credit cards more generally."